Jeremy Hunt has warned he is “preparing for the worst” ahead of his autumn budget as the Israel-Hamas conflict and the ongoing war in Ukraine weigh on the global economy.
The chancellor said the world is in “a very dangerous place”, adding that he is “focusing on resilience in the face of those shocks”.
His comments came as the governor of the Bank of England sounded his own warning on the economy, saying future interest rate decisions look “tight”.
Andrew Bailey said last month’s decision to keep interest rates at 5.25 per cent was “a tight one” and predicted “they’re going to go on being tight ones,” in comments that will worry mortgage holders.
Mr Hunt, speaking about whether households should expect good or bad news at the autumn statement next month, told Sky News “it’s a bit of both”.
He said: “I think the British economy compared to when I became Chancellor a year ago has proved to be much more resilient than nearly every international organisation predicted and people are looking at some of the underlying strengths.”
But he added: “In the short-term, we have challenges. We have a challenge with inflation, which is still too high. And we have the challenge of the international environment where there are still a lot of shocks.
“So I need, as Chancellor, to focus on resilience in the face of those shocks. I am very much hoping for the best, but I do need to prepare for the worst, because I think we can see that the world is a very dangerous place right now.”
Mr Hunt said Britain’s yearly debt interest payments will be up to £30bn higher than had been expected just months ago, adding to the squeeze on public finances.
He added that Britain faces “a very challenging environment in the short-term”.
“But my approach to this is to say we will manage those short-term pressures whilst at the same time building for the long-term,” he added.
Separately, Mr Bailey said things in the UK look better than they did a year ago, in a nod to the mini-budget chaos caused by Liz Truss last autumn. But he warned “there is an awful lot still to do”.
In a close decision last month, the BoE’s monetary policy committee decided to keep the base rate, rather than raise it to 5.5 per cent, which some economists and investors were expecting.
It was the first time since November 2021 that the BoE has left rates stable after 14 consecutive increases aimed at getting a lid on spiralling inflation. Officials still left the door open to further rises in the future, promising to “take the decisions necessary” to return inflation to a level of 2 per cent.
Speaking at the International Monetary Fund (IMF)’s annual meeting in Marrakech, Morocco, Mr Bailey said he was one of the few people there who could point to things being better now.
“From an economic point of view, if we look back over the last year I would say I’m probably the one person that can come in here and say things really do look better today than they did on this day last year,” he said.
“I can say that with some confidence.”
Mr Bailey has previously spoken about his experience of last year’s IMF meeting in Washington, which happened shortly after then-prime minister Liz Truss and then-chancellor Kwasi Kwarteng’s mini-budget.
We have made, I think, particularly in the last few months, solid progress in terms of showing signs that inflation is being tackled
“People were saying, ‘We didn’t think the UK would do this’,” he told the Treasury Select Committee last year.
On Friday, he said there are signs inflation is coming down but there is much left to do.
He said the Bank’s policy will continue to be “restrictive”.
Mr Bailey added: “We have made, I think, particularly in the last few months, solid progress in terms of showing signs that inflation is being tackled.
“But let’s not get carried away because there’s an awful lot still to do.
“I think many of us now see policy operating in a restrictive fashion and I’m obviously going to have to say that I think that’s what it needs to do.”
Mr Bailey said this will have an impact on the UK’s economy and is contributing to a “subdued outlook” for the country.
But without getting inflation back to target, that outlook would be even more subdued, he said.
